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Weekly wrap-up: Market updates, news and insights for the week ending 29th June

Publish date: 29th June, 2018

News: Indian Rupee briefly breached the level of Rs.69/$

Investment perspective:

• A weak rupee has larger implications in the form of imports getting more expensive and foreign investors taking money out in search of more stable currencies.

• There was clear central bank intervention around the Rs.69/$ level, wherein dollar selling helped. An NRI bond issue on the lines of the 2013 scheme is already being discussed.

Read forex insight Why Rupee crashed

News: Crude oil prices in the Brent market gets back to $78/bbl

Investment perspective:

• Even as the OPEC has agreed to increase its daily oil output by 1 million bpd, the Iran sanctions are again likely to constrain supply in the oil market.

• India’s monthly trade deficit touched $15 billion last month and dearer oil prices combined with a stronger dollar could put pressure on sovereign ratings and the INR.

Related read: 6 effects of rising crude oil prices on the Indian economy

News: IT and Pharma have turned outperformers in a volatile market

Investment perspective:

• The outperformance in IT was largely driven by a weaker rupee and expectations of a revival in tech spending on the back of better US growth prospects.

• Indian pharma stocks did see positive sentiments after Sun Pharma’s Halol plant got FDA approval and global healthcare market continued to show steady growth.

Read research on IT sector

News: Cement stocks have continued to struggle close to their 52-week lows

Investment perspective:

• Cement industry is currently in a state of glut with a 50% overcapacity as compared to the current domestic demand of 293 million tonnes.

• Cement stocks have typically done well in the stock markets only when the pricing power has been with the producers; and that looks unlikely in the current glut.

Read latest research reports

News: Government plans to sell its stake in IDBI Bank to LIC

Investment perspective:

• LIC will get an entry into the banking sector as it is the only large insurer without a banking license. The move also helps the government with its divestment target.

• The market concern is with regards to the use of policy holder funds to buy a stake in a loss making PSU bank that holds over 25% of Gross NPAs. That could be the challenge!

Read research on Banking sector

News: Shanghai’s China Composite drops 20% from recent peaks

Investment perspective:

• The sharp fall in Chinese stocks was an outcome of the escalating trade war with the US. China runs a $376 billion trade surplus with the US and Chinese markets have a real worry.

• Chinese markets have also been hit by a weaker Yuan (due to liquidity tightness) and that has some concerns for Indian markets after the reaction of INR seen in September 2015.

Related read: US-China trade face off: Why should India be concerned?

News: UPL could be silent beneficiary of the US-China trade war

Investment perspective:

• Chinese duties on US Soybean imports have forced many Chinese importers to look at alternative imports from Brazil, which is another major producer of Soybean.

• As Brazilian farmers make hay in the midst of rising demand, UPL being a major supplier of agricultural inputs in Latin America, is seeing robust demand in this region.

Related read: US-India trade tariffs: Which sectors could get affected?

News: IMF has a 3-point program for India to sustain higher growth rate

Investment perspective:

• For scaling higher from its current rate of around 7% growth, IMF has suggested combining banking reforms and GST reforms with fiscal consolidation.

• While GST is just 1 year in the process, India will look forward to dividends from banking reforms currently underway. Fiscal consolidation may be slightly more difficult.

Related read: 4 macro-economic factors that can affect corporate profits in FY18-19

News: Bankers have strong objections to RBI’s one-day default rule

Investment perspective:

• Currently, companies and banks are required to report even if there is a one delay in payment so that the stakeholders can be kept adequately informed.

• This has resulted in a much higher number of default accounts being reported, which according to banks is overestimating the picture of asset stress in banks.

Related read: Why we continue to have a ‘Buy’ rating on ICICI Bank

News: Tea production sees marginal fall in the midst of strong global demand

Investment perspective:

• Prices of tea have firmed up by Rs.10/kg after the marginal fall in tea production. There has been good traction for tea on the exports front.

• The only worry for the tea industry (in the midst of the price appreciation) is that Iranian exports could take a hit due to the recent imposition of sanctions by the US.

News: China plans to open up more of its economy to foreign investors

Investment perspective:

• China has eased foreign investment restrictions on a variety of industries ranging from banking to agriculture as a counter to the trade war with the US.

• China is looking to broad base its dependence beyond the US markets and has also dismissed US allegations that China was stealing American IP.

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